Privy Council Upholds Shareholder Arbitration Agreement And Stays Just And Equitable Winding Up Petition

• Law Firm: Maples Group
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Arbitration & Dispute Resolution, Shareholders
• Author: Mr Mac Imrie KC and Ryan Hallett
• Published date: 25 September 2023

In FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corporation, the Judicial Committee of the Privy Council (the " Privy Council ") held that a minority shareholder's complaints must be arbitrated pursuant to the terms of a shareholders' agreement, and stayed a just and equitable winding up petition filed in the Grand Court of the Cayman Islands. The Maples Group represented the successful party .

The judgment addresses the interplay between s.92(e) of the Companies Act (2022 Revision) (" Companies Act "), which permits shareholders to file a winding up petition based on any just and equitable ground² , and s.4 of the Foreign Arbitral Awards Enforcement Act (" FAAEA "). Section 4 gives effect to the New York Convention and provides, in respect of foreign arbitrations, that the court shall, on the application of any party to an arbitration agreement, stay any legal proceedings commenced in respect of any matter to be referred to arbitration, unless satisfied that the agreement is inoperative.

The upshot is that factual disputes between shareholders, including about whether trust and confidence has been lost, may fall within the scope of a broadly drafted arbitration agreement, and in such a case any winding up petition commenced is liable to be stayed pending determination of an arbitration of that matter. This result further reinforces the Cayman Islands' status as an arbitration-friendly jurisdiction, giving broader and more certain effect to the parties' agreed choice of dispute resolution.

Background

The two shareholders of a Cayman Islands company, CVS (Cayman Islands) Holding Corporation (" Company ") were parties to a shareholder's agreement (" SHA ") which contained a broadly drafted arbitration clause, i.e. "any and all disputes in connection with or arising out of this Agreement [shall be] submitted for arbitration ".

The Company's minority shareholder filed a petition to wind up the Company on the just and equitable ground (" Petition ") based on complaints about alleged conduct of the majority shareholder, which it alleged had caused it to lose trust and confidence in the management of the Company's business such that there was an irretrievable breakdown in the shareholder relationship.

The majority shareholder sought a mandatory stay of the Petition pursuant to s.4 of the FAAEA, and / or a discretionary stay on case management grounds.

At first instance, the Grand Court granted a mandatory stay pursuant to s.4 of the FAAEA, relying in part on the dicta of Lord Justice Patten in Fulham Football Club (1987) Ltd v Richards³ .

This decision was reversed upon the minority shareholder's appeal. The Cayman Islands Court of Appeal holding that none of the...